Pensioners to suffer another blow under Reeves's proposed cash Isa raid
Pensioners will suffer another blow under Labour if Rachel Reeves goes ahead with cutting the cash Isa limit to £4,000, experts have warned.
The Chancellor is reportedly considering changes to the cash Isa regime – which currently allows savers to protect £20,000 of their money from tax each year – after a meeting with City executives earlier this week.
One idea, championed by fund manager, Fidelity International, is that those wanting to put their money into cash Isas should have a tax-free allowance of just £4,000 – a fifth of its current amount.
But experts have said that the move will disproportionately affect elderly savers who cannot afford higher-risk alternatives and rely on cash Isas for safe returns.
It comes as Labour continues to face stark criticism for its the removal of the winter fuel allowance for more than 10 million pensioners, as well as the Chancellor's re-introduction of inheritance tax on pensions.
Jeremy Cox, head of strategy at Coventry Building Society, said 'Using the tax system to nudge savers into stocks and shares could have dangerous consequences.
'Losing a chunk of your life savings, particularly when you are no longer earning a salary, could mean changing your retirement plans, being unable to afford things you need like care, or reduce your ability to pass on a lump sum to your children or grandchildren to support them to get on the housing ladder.
'Taxing more of people's cash savings, particularly pensioners and those nearing retirement, feels like a very unpopular policy idea.'
Dennis Reed, director of Silver Voices, said: 'The Chancellor wants to encourage people to put Isas into stocks and shares, but a lot of older people don't trust stocks and shares, quite rightly, as there can always be a crash.
'With cash, the only thing you have got to contend with is inflation, and the interest on it will compensate for some of that.'
Mr Reed said that those coming up to retirement would be more affected, as changes would likely focus on how much money could be contributed in the future.
He said: 'It's probably future pensioners who will be affected more. A lot of people have a nest egg for their retirement because of all the unexpected costs which come their way.'
Sarah Coles, of Hargreaves Lansdown, said: 'We have clients opening stocks and shares Isas after the age of 100. However, retirees need to hold more emergency cash because they tend to be on lower fixed incomes, so have less wiggle room when they're hit by the unexpected. It means cash Isas can be particularly rewarding as we get older.'
However, she cautioned that the Government has still not confirmed any changes will be made to Isas at all and recent reports are 'pure speculation'.
It comes as analysis reveals how much extra tax pensioners could expect to pay if the limit on cash Isas was slashed to £4,000.
A basic-rate taxpayer putting away £20,000 a year, and earning 4.5pc within a tax-free shelter, would earn £2,329.50 less over a five year period.
For a higher-rate payer, this increases to £4,659, and an additional rate payer would be £5,241.38 worse off with an allowance of just £4,000, according to analysis by Quilter.
Shaun Moore, tax and financial planning expert at Quilter, said: 'For those who rely on cash Isas for security and liquidity, it would be important that any reforms take into account their need for accessible savings.'
The Treasury was contacted for comment.
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